Saudi Arabia’s (A1 stable) Ministry of Finance released on August 14 its second-quarter budget performance report, Moody’s said in an emailed statement. The report shows that the budget deficit fell to SAR72 billion in the first six months of the year, half the first-half 2016 deficit and only 37% of the government’s budgeted full-year deficit of SAR198 billion.
Moody’s noted that although the greatly reduced fiscal deficit is credit positive for the sovereign, the smaller deficit almost entirely reflects a sharp increase in oil revenues from higher oil prices, illustrating Saudi Arabia’s oil dependence.
According to Moody’s oil revenue in the first half of 2017 rose 63%, or SAR82.1 billion, from the year-earlier period, even as production cuts from the Organization of Petroleum Exporting Countries (OPEC) constrain Saudi Arabia’s crude oil output until March 2018.
The increased oil revenue comprised 69% of total government revenue in the first half of this year, up from 55% in first-half 2016.
Despite the government’s wide-ranging economic and fiscal reforms to reduce its dependence on oil revenue, the results of efforts to grow non-oil revenue have been mixed, Moody’s said.
Overall, non-oil revenue in the first half of 2017 declined by almost 12%, or SAR12.7 billion, from a year earlier.
Customs revenues dropped SAR2.9 billion, despite increased duties on hundreds of items in 2017, and likely reflects the continued weak growth of import-dependent non-oil sectors, Moody’s said, noting, however, income tax revenue (primarily corporate taxes) increased 23%, or SAR1.7 billion, over the same period.
Full-year fiscal consolidation will remain contingent on oil price stability in the second half of the year, given the modest progress at increasing non-oil revenues, Moody’s concluded.